Treading On

Ben Franklin wrote that nothing is certain except death and taxes, but it's rare for death to come to taxes or tax breaks.

Even unpopular taxes like the Shelby County Wheel Tax seem to have eternal life, while unpopular tax policies like those waiving taxes seem just as immortal. The wheel tax this year entered its third decade. Created to avoid a 45-cent hike in property tax, it is testament to the "lesser of all evils" taxation choices for local government.

The poorer a Memphian is, the greater percentage of his income is paid in taxes, or — translated into bureaucratese — it's called regressivity, meaning that taxes are not based on a person's ability to pay.

Combine that with the fact that local government's lifeblood comes from regressive sources — property tax, sales tax, and wheel tax — and that Memphians pay the highest taxes in Tennessee (about one-third more than Nashville) and it leaves local elected officials with few options that don't border on political suicide.

That's why, as Shelby County mayor, A C Wharton regularly went to Nashville with hat in hand to beg the Tennessee Legislature to give him new tax options that weren't regressive. Each time, he left empty-handed, and with a Republican majority now in charge, it's unimaginable that any will be approved now.

In 2001, the year before Wharton took office, county government doubled the wheel tax for passenger vehicles to raise $14 million for schools, and the deep disdain for the tax spawned all kinds of friction that persists today. There are people who swear the wheel tax was only to last one year, that it was to pay for all construction needs of the schools, that it wasn't supposed to pay for The Med and schools, that only Shelby County has a wheel tax, and that it was surreptitiously passed by a board of commissioners.

None of those claims is true. The tax was passed in a public meeting, its uses were approved in a public vote of the board of commissioners, and the bonds being paid by the tax could not have been issued without a detailed accounting.

But, on one thing, opponents of the wheel tax were right. They said that although the tax was created to pay for specific bonds, it would never phase out, even when the bonds were paid off. Next year, the tax created to produce $14 million a year is budgeted to spin off $30 million.

Meanwhile, local government waived roughly $60 million in property taxes as enticements to attract businesses. This tax-freeze program also began with pledges that it would only be used temporarily to jolt our economy, and over time, businesses would be weaned as our economic development strategies shifted from cheapness to quality.

Just the opposite happened, and in a 10-year period, Memphis and Shelby County approved 809 tax freezes, more than Knoxville, Nashville, and Chattanooga combined. In fact, Nashville approved only five. As the former director of the Nashville office of economic development said: "Incentives should incentivize. Once they become an entitlement, they're no longer an incentive."

The tax-freeze program was so out of control earlier this decade that it was criticized even by pro-business Forbes magazine, which wrote: "But targeted tax incentives don't spur real growth. Quite the contrary . . . tax incentives are inevitably financed at the expense of established businesses. Today's winner of a targeted tax break is tomorrow's victim of a broad increase in business taxes."

The cry for change culminated in a report in 2005 by city and county governments' own consultants, who strongly recommended a major overhaul of the tax-freeze program. It took a year for government to approve changes, but the ink was barely dry before intense lobbying began to loosen things up again. In only a matter of months, it was difficult to see any major change in the way tax freezes were handled and approved or any of the checks and balances needed in the program.

Then, two months ago, city and county government went a step further, approving tax waivers for large businesses who have been here 10 years, are investing $10 million, and retaining 100 jobs. It will be the first time property taxes will be given away without the promise of more jobs. And it will be done in the face of researchers like David Birch, who say that "the cities growing fastest right now have the highest taxes, most expensive workers, most expensive land. . . . To say you want the cheapest worker is an old way of thinking. What you really want is a talented labor force, not the least expensive labor force."